A tangible benefit evaluation seeks to determine whether a business is meeting its stated objectives or whether the cost of achieving the benefit equals its results. Both perspectives focus on quantitative calculations that tend to remove subjectivity from the results. The information obtained from the evaluation is essential for helping small-business owners achieve long-term objectives.

Tangible Definition

Determining what constitutes a tangible benefit can be confusing. Although finance is often a factor, tangible benefits can include those with no obvious or direct financial outcome. The determining factor is whether a benefit includes measurable objective evidence. For example, while it may appear that customer satisfaction is intangible, the fact that it can be measured by calculating repeat business rates, customer turnover and evaluating customer complaint data makes it a tangible benefit.

Performance Indicators

Tangible benefit evaluations use key performance indicators (KPIs) and benchmarks in making objective measurements. KPIs chosen to evaluate a tangible benefit relate directly to a specific benchmark measurement. For example, employee productivity and customer satisfaction can be tangible benefits in a retail business. KPIs relating to employee productivity might include average time to complete a task and the number of times the checkout process falls within a set time range. Customer satisfaction KPIs might include the number of customer complaints in a given period and customer service ratings.

Cost-Benefit Analysis

A cost-benefit analysis is useful when evaluating a tangible benefit in terms of cost. An example is determining whether an estimated revenue increase from a proposed marketing program is greater than the cost of the program. An evaluation starts by identifying existing or potential tangible benefits and calculating or estimating the financial cost of achieving these benefits. Each benefit is then measured against a benchmark. In general, the costs of realizing a tangible benefit should be less than 50% of its actual or estimated financial benefits and the payback period shouldn't exceed 12 months.

Opportunity Cost Analysis

An opportunity cost analysis expands on the concept of a cost-benefit analysis to include a range of options when making a business decision. Setting up a business website can increase customer satisfaction and increase sales revenues. There are, however, a number of options available for achieving these objectives, each of which has differing degrees of cost. While building the website internally rather than outsourcing the project might reduce initial cost, it can compromise customer satisfaction and revenue if the business doesn’t have the expertise to build a properly functioning site. Whichever option best optimizes tangible benefits most is often the preferred option.

About the Author

Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.